UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
Commission file number 0-24606
NORTHWEST EQUITY CORP.
(exact name of small business issuer as specified in its charter)
Wisconsin 39-1772981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Keller Avenue South
Amery, Wisconsin 54001
(Address of principal executive offices) (Zip code)
(715) 268-7105
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes __x__ No_____
(2) Yes __x__ No_____
The number of shares outstanding of the issuer's common stock, $1.00 par
value per share, was 929,267 at December 31, 1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NORTHWEST EQUITY CORP.
Dated:___02/07/96______________ By: __/s/ Brian L. Beadle__________
(Brian L. Beadle, President
Principal Executive Officer and
Principal Financial and
Accounting Officer)
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Registrant is not involved in legal proceedings involving amounts in
the aggregate which management believes are material to the financial condition
and results of operations of the Registrant. (Materiality is defined for
accounting purposes as $250,000 or more) On October 16, 1996, the Bank learned
that a Minnesota Bank had commenced a repleven lawsuit against a borrower of the
Bank that involves several parties claiming interests in collateral secured a
General Business Security Agreement of the Bank. On November 20, 1996, the Bank
filed its answer and a third party complaint seeking repleven of its collateral
and money judgments against its borrowers, the guarantors, and other interested
parties. Repleven judgment was entered in favor of the Bank on January 15, 1997.
A money judgment was filed against a guarantor on December 30, 1996. One of the
guarantors has since filed personal bankruptcy. The Bank will commence an action
to avoid their discharge in bankruptcy court. The Bank is asserting the priority
of its liens against other creditors in state circuit court. Depending upon the
non-exempt assets of the parties involved, the Bank's legal counsel believes the
Bank should have sufficient legal grounds to expect recovery from the Bank's
collateral, personal guarantees, and the other parties involved. The Board of
Directors at its meeting October 8, 1996, decided to increase the quarterly loss
allowance to $25,000 until more information is available to make a reasonable
estimate of any losses that may occur. The Board continued this policy at its
meeting held December 10, 1996, because a reasonable estimate still could not be
determined. As soon as the Board can identify and quantify the amount of the
loss, it will book the loss. In order to establish an order of magnitude of the
loss potential, a worst case scenario of no recovery on a loan of $525,000 plus
an overdraft of $83,000 less the current amount in the loan loss reserve of
$298,000 allocated or available to be allocated to this loan, would produce an
after-tax loss of approximately $186,000.
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-k.
a. No reports on Form 8-K were filed during the quarter for which this
report was filed.
2
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NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
1996 March 31,
ASSETS (unaudited) 1996
----------- ----
Cash - including interest bearing deposits of $2,217
at December 31, 1996 and $2,465 at March 31, 1996 $3,412 $3,412
Securities available- for- sale - fair value 3,019 2,859
Mortgage backed securities - market value of $7,584
at December 31, 1996 and $5,386 at March 31, 1996 7,567 5,373
Loans held for sale - at market 429 717
Loans receivable - net 77,810 69,963
Foreclosed properties and properties subject to foreclosure 73 127
Investment in Federal Home Loan Bank stock at
cost - which approximates fair value 852 803
Premises and equipment 2,370 2,199
Accrued interest receivable 580 602
Prepaid expenses and other assets 406 300
---- ---
TOTAL ASSETS $96,518 $86,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings accounts $62,440 $57,256
Advances from Federal Home Loan Bank 16,045 12,556
Other borrowed money 5,711 4,356
Accounts payable and accrued expenses 409 308
Accrued income taxes 86 15
--- --
Total liabilities 84,691 74,491
Stockholders' Equity
Preferred stock - $1 par value per share;
2,000,000 shares authorized; none issued - - - -
Common stock - $1 par value per share; 4,000,000 shares
authorized; 1,032,517 shares issued and outstanding 1,033 1,033
Additional paid-in capital 6,584 6,584
Net unrealized loss on securities available for sale (14) (34)
Less unearned restricted stock plan award (147) (319)
Less unearned Employee Stock Ownership
Plan compensation (594) (699)
Less treasury stock - at cost - 103,250 shares (1,105) (561)
Retained earnings - substantially restricted 6,070 5,860
------ -----
Total stockholders' equity 11,827 11,864
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $96,518 $86,355
======= =======
See accompanying Notes to Consolidated Financial Statements
3
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<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands except for per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $1,708 $1,527 $4,979 $4,353
Interest on mortgage-backed securities 139 119 421 252
Interest and dividends on investments 56 48 173 154
--- ---- ---
Total interest income 1,903 1,694 5,573 4,759
----- ----- ----- -----
Interest expense:
Interest on savings 738 691 2,165 1,930
Interest on borrowings 314 198 869 481
---- ---- ---- ---
Total interest expense 1,052 889 3,034 2,411
----- ---- ----- -----
Net interest income 851 805 2,539 2,348
Provision for loan losses 25 6 56 18
--- -- --- --
Net interest income after provision for loan losses 826 799 2,483 2,330
--- --- ----- -----
Other income:
Mortgage servicing fees 20 19 58 54
Service charges on deposits 59 58 171 177
Gain on sale of mortgage loans 18 29 48 47
Other 49 12 150 89
--- --- ---- --
Total other income 146 118 427 367
--- --- ---- ---
General and administrative expenses:
Salaries and employee benefits 278 298 901 754
Net occupancy expense 107 68 241 191
Data processing 31 32 98 101
Federal insurance premiums 0 32 418 94
Other 131 175 420 451
--- --- ---- ---
Total general and administrative expense 547 605 2,078 1,591
--- --- ----- -----
Income before income taxes 425 312 832 1,106
` `
Income taxes 177 141 349 472
--- --- --- ---
Net income $248 $171 $483 $634
==== ==== ==== ====
Earnings per share: $0.29 $0.18 $0.55 $0.68
----- ----- ----- -----
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
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<TABLE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(In Thousands)
<CAPTION>
Unrealized
Gain(Loss) Unearned
Additional On Securities Unearned ESOP
Common Paid-in Available Restricted Compen- Treasury Retained
Stock Capital For Sale Stock sation Stock Earnings Total
Nine Months Ended December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1995 $1,033 $6,584 (107) - - (826) - - 5354 12,038
Net income - - - - - - - - - - - - 634 634
Adjustment of carrying value of securities
available for sale, net of deferred taxes of $63 - - - - 97 - - - - - - - - 97
Amortization of unearned ESOP and restricted
stock award - - - - - - (389) 94 - - - - (295)
Purchase of Treasury Stock - - - - - - - - - - (561) - - (561)
Cash dividends - $.08 per share - - - - - - - - - - - - (248) (248)
Balance - December 31, 1995 $1,033 $6,584 ($10) ($389) ($732) ($561) $5,740 $11,665
====== ====== ===== ====== ====== ====== ====== =======
Nine Months Ended December 31, 1996
Balance - March 31, 1996 $1,033 $6,584 ($34) ($319) ($699) ($561) $5,860 $11,864
Net income - - - - - - - - - - - - 483 483
Adjustment of carrying value of securities
available for sale, net of deferred taxes of $14 - - - - 21 - - - - - - - - 21
Amortization of unearned ESOP and restricted
stock award - - - - - - 172 105 - - - - 277
Purchase of Treasury Stock - - - - - - - - - - (544) - - (544)
Cash dividends - $.10 per share - - - - - - - - - - - - (274) (274)
Balance - December 31, 1996 $1,033 $6,584 ($13) ($147) ($594) ($1,105) $6,069 $11,827
====== ====== ===== ====== ====== ======== ====== =======
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Nine Months Ended
December 31,
1996 1995
Cash provided by operating activities:
Net income $483 $634
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 110 73
Provision for loan losses 56 18
Amortization of ESOP and restricted stock awards 277 - -
Proceeds from sales of mortgage loans 4,295 4,878
Loans originated for sale (3,959) (4,831)
Decrease (increase) accrued interest receivable 22 (52)
Decrease(increase) prepaid expenses and other assets (106) (30)
Increase (decrease) accrued interest payable (17) 16
Increase(decrease) accrued income taxes payable 71 (34)
Increase(decrease) other accrued liabilities 118 (2)
---- ---
Net cash provided by operating activities 1,350 670
----- ---
Cash provided by investing activities:
Principal collected on long-term loans 20,937 16,119
Long-term loans originated or acquired (28,950) (26,712)
Purchases of mortgage-backed securities (2,766) (3,917)
Principal collected on mortgage-backed securities 572 384
Proceeds from sale of foreclosed property 137 - -
Purchase of office properties and equipment (281) (312)
Purchase of investments (209) (317)
----- -----
Net cash provided by (used in) investing activities (10,560) (14,755)
-------- --------
Cash provided by financing activities:
Net increase (decrease) in savings accounts 5,184 5,885
Net increase(decrease) in short term borrowings (2,564) 8,752
Repayments of long-term financing (861) (600)
Proceeds from long-term financing 8,269 550
Purchases of treasury stock (544) (561)
Acquisition of common stock for awards - - (459)
Dividends paid (274) - -
------ ---
Net cash provided by (used in) financing activities 9,210 13,567
----- ------
Increase (decrease) in cash and equivalents 0 (518)
Cash and equivalents - beginning 3,412 3,086
----- -----
Cash and equivalents - ending $3,412 $2,568
====== ======
Supplemental disclosures of cash flow information:
Loans receivable transferred to foreclosed properties
and properties subject to foreclosure $83 $125
Properties subject to foreclosure transferred to
loans receivable $ - - $ - -
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies:
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with the accounting policies described in
the Bank's audited financial statements for the year ended March 31, 1996, and
should be read in conjunction with the financial statements and notes that
appear in that report. These statements do not include all the information and
disclosures required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered for a fair presentation have been included.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
NORTHWEST EQUITY CORP.
Comparison of Operating Results for the Three Months Ended December 31, 1995 and
December 31, 1996
Net Income
Net income for the three months ended December 31, 1996, increased $77,000 or
45.0% to $248,000 compared to $171,000 for the three months ended December 31,
1995. The increase in net income was primarily due to an increase of $46,000 in
net interest income from $805,000 for the three months ended December 31, 1995,
to $851,000 for the three months ended December 31, 1996, and an increase of
$28,000 in total other income from $118,000 for the three months ended December
31, 1995, to $146,000 for the three months ended December 31, 1996. Federal
insurance expense decreased $32,000 from $32,000 for the three months ended
December 31, 1995, to $0 for the three months ended December 31, 1996. The
reduction stems from recent legislation that recapitalized the Federal Deposit
Insurance Corporation (FDIC) fund insuring deposits in savings institutions with
a one time Special Assessment. The assessment for the Company of $350,000 was
expensed in the three months ended September 30, 1996. In exchange for this
one-time assessment, the future premiums paid to the Savings Association Fund
(SAIF) will be reduced by about 70 percent, to 6.4 cents from 23 cents per $100
of deposits beginning January 1, 1997. The premium paid for the last quarter of
the calendar year was refunded. Salaries and employee benefits decreased $20,000
from $298,000 for the three months ended December 31, 1995, to $278,000 for the
three months ended December 31, 1996. The decrease reflects a reduction of
$38,000 in expense from accounting for the Company's stock incentive plan from
$70,000 for the three months ended December 31, 1995, to $32,000 for the three
months ended December 31, 1996. The accounting for this expense did not begin
until the approval of the Company's stock incentive plan in October 1995; and
required under applicable accounting standards that 61.1% of the three-year cost
be amortized in the first year after approval. The $32,000 amount will continue
through September 30, 1997, when it will be reduced to $13,000 for the final
year ending September 30, 1998.
Net Interest Income
Net interest income increased by $46,000 from $805,000 for the three months
ended December 31, 1995, to $851,000 for the three months ended December 31,
1996. Interest income increased $209,000 to $1.9 million for the three months
ended December 31, 1996, compared to $1.7 million for the three months ended
December 31, 1995, while interest expense increased only $163,000 to $1.1
million for the three months ended December 31, 1996, from $889,000 for the
three months ended December 31, 1995. Net interest margin decreased from 4.17%
for the three months ended December 31, 1995, to 3.77% for the three months
ended December 31, 1997. The interest of $28,000 for the three months ended
December 31, 1996, from the commercial loan discussed in Part II, Item 1. Legal
Proceedings changed from an accrued to non-accrual status and represents 0.13 %
of the decrease in net interest margin. The remaining decrease in net interest
margin is partially due to the purchase of lower-yielding mortgage-backed
securities to meet the Department of Financial Institutions increased liquidity
requirements. The Average yield on mortgage-backed securities was 7.29% for the
three months ended December 31, 1996, compared to the average yield of 8.68% for
total loans for the three months ended December 31, 1996. The mortgage-backed
securities were purchased with advances with an average yield including other
borrowed money of 5.97% for the three months ended December 31, 1996, compared
to the average yield on total deposits of 4.72% for the three months ended
December 31, 1996. The combination of funding the purchase of lower-yielding
assets with higher-yielding liabilities acted to lower the net interest margin.
8
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Interest Income
Interest income increased $209,000 or 12.3% to $1.9 million for the three months
ended December 31, 1996, compared to $1.7 million for the three months ended
December 31, 1995. Of the increase, $181,000 was due to an increase in interest
and fees on loans to $1.7 million for the three months ended December 31, 1996,
compared to $1.5 million for the three months ended December 31, 1995. This
increase was due to the increase in the average outstanding balance of total
loans to $78.7 million for the three months ended December 31, 1996, compared to
$67.8 million for the three months ended December 31, 1995. The increase in
total loans reflects the general increase in mortgage interest rates over the
comparable periods that encouraged the bank's customers to seek adjustable rate
loans that are held in house as opposed to fixed-rate loans that are sold on the
secondary market. The remaining increase was due to a $20,000 increase in
interest on mortgage-backed and related securities to $139,000 for the three
months ended December 31, 1996, from $119,000 for the three months ended
December 31, 1995. This increase was due to an increase in the average
outstanding balance of mortgage backed securities from $5.6 million for the
three three months ended December 31, 1995, to an average outstanding balance of
$7.6 million for the three months ended December 31, 1996. The increase was the
result of the purchase of $2.8 million of additional securities to meet
increased Wisconsin Department of Financial Institutions liquidity requirements.
Interest on investments increased $8,000 to $56,000 for the three months ended
December 31, 1996, compared to $48,000 for the three months ended December 31,
1995.
Interest Expense
Interest expense increased $163,000 or 18.3% to $1.1 million for the three
months ended December 31, 1996, compared to $889,000 for the three months ended
December 31, 1995. Interest on savings increased $47,000 or 6.80% from $691,000
for the three months ended December 31, 1995, to $738,000 for the three months
ended December 31, 1996. The increase reflects an increase in the average
outstanding balances of total deposits to $62.4 million for the three months
ended December 31, 1996, from an average outstanding balance of $55.3 million
for the three months ended December 31, 1995. Interest on borrowings increased
$116,000 or 58.6% from $198,000 for the three months ended December 31, 1995, to
$314,000 for the three months ended December 31, 1996. The increase reflects an
increase in the average outstanding balance of advances and other borrowings
from $13.1 million for the three months ended December 31, 1995, to $21.0
million for the three months ended December 31, 1996. The increase in advances
and other borrowings was used to fund the increase in assets between the
periods.
Provision for Loan Losses
The provision for loan losses increased $19,000 to $25,000 for the three months
ended December 31, 1996, compared to $6,000 for the three months ended December
31, 1995. The increase reflects the Board of Directors' recognition of a
commercial loan that appeared on the September 30, 1996, watch list for the
first time. Unable to make an informed estimate of the loss potential, the Board
decided to establish an increased quarterly loss allowance until more
information is available to make a reasonable estimate of any losses that may
occur (See Part II, Item 1, Legal Proceedings). The allowance for loan losses
totaled $479,000 at December 31, 1996, compared to $437,000 at December 31,
1995, and represented 0.61% and 0.63% of gross loans and 34.3% and 117.5% of
non-performing loans, respectively. When compared to the allowance for loan
losses calculation that is based on a three year actual loss average, the Board
of Directors believes the allowance for loan losses is at an adequate level to
provide for potential loan losses and that future provisions for loan losses
will be at levels necessary to cover only charge-offs and general increases in
gross loans. The non-performing assets to total assets ratio was 1.54% at
December 31, 1996, compared to 0.64% at December 31, 1995.
9
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Other Income
Total other income increased 23.7% or $28,000 to $146,000 for the three months
ended December 31, 1996, compared to $118,000 for the three months ended
December 31, 1995. The increase was primarily due to and increase in other
income of $37,000 from $12,000 for the three months ended December 31, 1995, to
$49,000 for the three months ended December 31, 1996. The other income increase
was primarily due to an increase of $34,000 in profit on sale of lots from $0
for the three months ended December 31,1995, to $34,000 for the three months
ended December 31, 1996, in the Bank's subsidiary. Service charges on deposits
increased $1,000 to $59,000 for the three months ended December 31, 1996,
compared, to $58,000 for the three months ended December 31, 1995. The increases
were offset by a $11,000 decrease in gain on sale of mortgage loans to $18,000
for the three months ended December 31, 1996, compared, to $29,000 for the three
months ended December 31, 1995.
General and Administrative Expenses
General and administrative expenses decreased $58,000 or 9.59% to $547,000 for
the three months ended December 31, 1996, compared to $605,000 for the three
months ended December 31, 1995. Salaries and employee benefits decreased $20,000
from $298,000 for the three months ended December 31, 1995, to $278,000 for the
three months ended December 31, 1996. The decrease reflects a reduction of
$38,000 in expense from accounting for the Company's stock incentive plan from
$70,000 for the three months ended December 31, 1995, to $32,000 for the three
months ended December 31, 1996. The accounting for this expense did not begin
until the approval of the Company's stock incentive plan in October 1995; and
required under applicable accounting standards that 61.1% of the three-year cost
be amortized in the first year after approval. The $32,000 per quarter amount
will continue through September 30, 1997, when it will be reduced to $13,000 per
quarter for the final one-year period ending September 30, 1998. Other expenses
decreased $44,000 from $175,000 for the three months ended December 31, 1995, to
$131,000 for the three months ended December 31, 1996. This decrease was
primarily due to a decrease of $44,000 in legal fees in the holding company from
$45,000 for the three months ended December 31, 1995, to $1,000 for the three
months ended December 31, 1996. The legal expenses for the period ended December
31, 1995, included one-time fees for the establishment of the employee incentive
plans. Net occupancy expense increased $39,000 from $68,000 for the three months
ended December 31, 1995, to $107,000 for the three months ended December 31,
1996, and reflects the depreciation expense associated with the addition and
remodeling project to the New Richmond office location completed in June, 1996,
and the purchase of new computer equipment for all three offices in October,
1996. Federal insurance expense decreased $32,000 from $32,000 for the three
months ended December 31, 1995, to $0 for the three months ended December 31,
1996. The reduction stems from recent legislation that recapitalized the Federal
Deposit Insurance Corporation (FDIC) fund insuring deposits in savings
institutions with a one time Special Assessment. The assessment for the Company
of $350,000 was expensed in the three months ended September 30, 1996. In
exchange for this one-time assessment, the future premiums paid to the Savings
Association Fund (SAIF) will be reduced by about 70 percent, to 6.4 cents from
23 cents per $100 of deposits beginning January 1, 1997. The premium paid for
the last quarter of the calendar year was refunded. (See Current Developments
Section).
Income Tax Expense
Income tax expense increased $36,000 or 25.5% from $141,000 for the three months
ended December 31, 1995, to $177,000 for the three months ended December 31,
1996. The increase in income tax expense is the direct result of the increase in
income before taxes of $113,000 or 36.2% from $312,000 for the three months
ended December 31, 1995, to $425,000 for the three months ended December 31,
1996. The effective tax rate for the three months ended December 31, 1996, was
41.7% compared to 45.2% for the three months ended December 31, 1995.
10
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Comparison of Operating Results for the Nine months Ended December 31, 1995 and
December 31, 1996
Net Income
Net income for the nine months ended December 31, 1996, decreased $151,000 or
23.8% to $483,000 compared to $634,000 for the nine months ended December 31,
1995. The decrease in net income was primarily due to a one time $350,000
Federal Deposit Insurance Corporation (FDIC) Special Assessment for the three
months ended September 301996. The charge stems from recent legislation that
recapitalizes the FDIC fund insuring deposits in savings institutions. In
exchange for this one-time assessment, the future premiums paid to the Savings
Association Fund (SAIF) will be reduced by about 70 percent, to 6.4 cents from
23 cents per $100 of deposits. The charge will be more than offset by the
reduction in future premiums (See Current Developments Section). Salaries and
employee benefits increased $147,000 from $754,000 for the nine months ended
December 31, 1995, to $901,000 for the nine months ended December 31, 1996. The
increase is primarily due to an increase in expense from accounting for the
Company's stock incentive plan of $102,000 to $172,000 for the nine months ended
December 31, 1996, from $70,000 for the nine months ended December 31, 1995.
Under applicable accounting standards, 61.1% of the three-year cost is amortized
in the first year. The accounting for this expense did not begin until the
approval of the Company's stock incentive plan in October 1995; and therefore
only one quarter of this expense was taken for the nine months ended December
31, 1995. The increase in expenses was partially offset by an increase of
$191,000 in net interest income from $2.3 million for the nine months ended
December 31, 1995, to $2.5 million for the nine months ended December 31, 1996,
and an increase of $60,000 in total other income from $367,000 for the nine
months ended December 31, 1995, to $427,000 for the nine months ended December
31, 1996
Net Interest Income
Net interest income increased by $191,000 from $2.3 million for the nine months
ended December 31, 1995, to $2.5 million for the nine months ended December 31,
1996. Interest income increased $814,000 to $5.6 million for the nine months
ended December 31, 1996, compared to $4.8 million for the nine months ended
December 31, 1995, while interest expense increased only $623,000 to $3.0
million for the nine months ended December 31, 1996, from $2.4 million for the
nine months ended December 31, 1995. The Bank's net interest margin decreased to
3.87% for the nine months ended December 31, 1996, from 4.31% for the nine
months ended December 31, 1995. The interest on the commercial loan discussed in
Part II, Item 1. Legal Proceedings of $28,000 for the nine months ended December
31, 1996, changed from an accrued to non-accrual status and represents 0.04 % of
the decrease in net interest margin. The remaining decrease in net interest
margin is partially due to the purchase of lower-yielding mortgage-backed
securities to meet the Department of Financial Institutions increased liquidity
requirements. The Average yield on mortgage-backed securities was 7.25% for the
nine months ended December 31, 1996, compared to the average yield of 8.78% for
total loans for the nine months ended December 31, 1996. The mortgage-backed
securities were purchased with advances with an average yield including other
borrowed money of 5.80% for the nine months ended December 31, 1996, compared to
the average yield on total deposits of 4.70% for the nine months ended December
31, 1996. The combination of funding the purchase of lower-yielding assets with
higher-yielding liabilities acted to lower the net interest margin.
Interest Income
Interest income increased $814,000 or 17.0% to $5.6 million for the nine
months ended December 31, 1996, compared to $4.8 million for the nine months
ended December 31, 1995. Of the increase, $626,000 was due to an increase in
interest and fees on loans to $5.0 million for the nine months ended
December 31, 1996, compared to $4.4 million for the nine months ended
December 31, 1995. This increase was due to the
11
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
increase in the average outstanding balance of total loans to $75.6 million for
the nine months ended December 31, 1996, compared to $64.2 million for the nine
months ended December 31, 1995. The increase in total loans reflects the general
increase in mortgage interest rates over the comparable periods that encouraged
the bank's customers to seek adjustable rate loans that are held in house as
opposed to fixed-rate loans that are sold on the secondary market. The remaining
increase was primarily due to a $169,000 increase in interest on mortgage-backed
and related securities to $421,000 for the nine months ended December 31, 1996,
from $252,000 for the nine months ended December 31, 1995. This increase was due
to an increase in the average outstanding balance of mortgage backed securities
from $4.6 million for the nine months ended December 31, 1995, to an average
balance of $7.7 million for the nine months ended December 31, 1996. This
increase was the result of the purchase of $2.8 million of additional securities
to meet increased Wisconsin Department of Financial Institutions liquidity
requirements. Interest on investments increased $19,000 to $173,000 for the nine
months ended December 31, 1996, compared to $154,000 for the nine months ended
December 31, 1995, as a result of an increase in the average outstanding
balances of interest-bearing deposits in other financial institutions,
securities held for sale, and Federal Home Loan Bank stock from $3.8 million for
the nine months ended December 31, 1995, to $4.2 million for the nine months
ended December 31, 1996.
Interest Expense
Interest expense increased $623,000 or 26.0% to $3.0 million for the nine months
ended December 31, 1996, compared to $2.4 million for the nine months ended
December 31, 1995. Interest on savings increased $235,000 or 12.2% from $1.9
million for the nine months ended December 31, 1995, to $2.2 million for the
nine months ended December 31, 1996. The increase reflects an increase in the
average outstanding balance of total deposits to $61.5 million for the nine
months ended December 31, 1996, from an average balance of $53.5 million for the
nine months ended December 31, 1995. Interest on borrowings increased $388,000
or 80.7% from $481,000 for the nine months ended December 31, 1995, to $869,000
for the nine months ended December 31, 1996. The increase reflects an increase
in average outstanding balance of advances and other borrowings from $10.2
million for the nine months ended December 31, 1995, to $20.0 million for the
nine months ended December 31, 1996. The increase in advances and other
borrowings was used to fund the increase in assets between the periods.
Provision for Loan Losses
The provision for loan losses increased $38,000 to $56,000 for the nine months
ended December 31, 1996, compared to $18,000 for the nine months ended December
31, 1995. The increase reflects the Board of Directors' recognition of a
commercial loan that appeared on the September 30, 1996, watch list for the
first time. Unable to make an informed estimate of the loss potential, the Board
decided to establish a quarterly loss allowance of $25,000 until more
information is available to make a reasonable estimate of any losses that may
occur (See Part II, Item 1, Legal Proceedings). The allowance for loan losses
totaled $479,000 at December 31, 1996, compared to $437,000 at December 31,
1995, and represented 0.61% and 0.60% of gross loans and 34.3% and 116.2% of
non-performing loans, respectively. When compared to the allowance for loan
losses calculation that is based on a three year actual loss average, the Board
of Directors believes the allowance for loan losses is at an adequate level to
provide for potential loan losses and that future provisions for loan losses
will be at levels necessary to cover only charge-offs and general increases in
gross loans. The non-performing assets to total assets ratio was 1.54% at
December 31, 1996, compared to 0.64% at December 31, 1995.
Other Income
Total other income increased $60,000 or 16.4% to $427,000 for the nine months
ended December 31, 1996, compared to $367,000 for the nine months ended December
31, 1995. Other income increased $61,000 from $89,000 for the nine months ended
December 31, 1995, to $150,000 for the nine months ended
12
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
December 31, 1996. The increase is primarily due to and increase of $46,000 in
real estate lot sales in the bank's subsidiary to $84,000 for the nine months
ended December 31, 1996, from $38,000 for the nine months ended December 31,
1995.
General and Administrative Expenses
General and administrative expenses increased $487,000 or 30.4% to $2.1 million
for the nine months ended December 31, 1996, compared to $1.6 million for the
nine months ended December 31, 1995. The increase was primarily due to an
increase of $324,000 in Federal insurance premiums from $94,000 for the nine
months ended December 31, 1995, to $418,000 for the nine months ended December
31, 1996. The increase is due to a one-time $350,000 Federal Deposit Insurance
Corporation (FDIC) Special Assessment for the three months ended September 30,
1996. The charge stems from recent legislation that recapitalizes the FDIC fund
insuring deposits in savings institutions. In exchange for this one-time
assessment, the future premiums paid to the Savings Association Fund (SAIF) will
be reduced by about 70 percent, to 6.4 cents from 23 cents per $100 of deposits.
The charge will be more than offset by the reduction in future premiums (See
Current Developments Section). Salaries and employee benefits increased $147,000
from $754,000 for the nine months ended December 31, 1995, to $901,000 for the
nine months ended December 31, 1996. The increase is primarily due to an
increase in expense from accounting for the Company's stock incentive plan of
$102,000 to $172,000 for the nine months ended December 31, 1996, from $70,000
for the nine months ended December 31, 1995. Under applicable accounting
standards, 61.1% of the three-year cost is amortized in the first year. The
accounting for this expense did not begin until the approval of the Company's
stock incentive plan in October 1995; and therefore only one quarter of this
expense is included in the nine months ended December 31, 1995. Net occupancy
expense increased $50,000 from $191,000 for the nine months ended December 31,
1995, to $241,000 for the nine months ended December 31, 1996, and reflects the
depreciation expense associated with the addition and remodeling project to the
New Richmond office location completed in June, 1996, and the purchase of new
computer equipment for all three offices in October, 1996. Other expenses
decreased $31,000 from $451,000 for the nine months ended December 31, 1995, to
$420,000 for the nine months ended December 31, 1996. This decrease was
primarily due to a decrease of $49,000 in legal fees in the holding company from
$67,000 for the nine months ended December 31, 1995, to $18,000 for the nine
months ended December 31, 1996. The legal expenses for the period ended December
31, 1995, included one-time fees for the establishment of the employee incentive
plans.
Income Tax Expense
Income tax expense decreased $123,000 or 26.1% from $472,000 for the nine months
ended December 31, 1995, to $349,000 for the nine months ended December 31,
1996. The decrease in income tax expense is the direct result of a decrease in
income before taxes of $274,000 from $1.1 million for the nine months ended
December 31, 1995, to $832,000 for the nine months ended December 31, 1996. The
effective tax rate for the nine months ended December 31, 1996, was 42.0%
compared to 42.7% for the nine months ended December 31, 1995.
Financial Condition
Total assets increased $10.2 million or 11.8% to $96.5 million at December 31,
1996, compared to $86.4 million at March 31, 1996. The increase is a result of a
$7.8 million or 11.1% increase in loans receivable-net to $77.8 million at
December 31, 1996, compared to $70.0 million at March 31, 1996. The increase in
loans receivable-net was the result of the expected seasonal increase of loan
activity during the spring and summer months. Cash remained at $3.4 million at
December 31, 1996, and at March 31, 1996. Securities available for sale
increased $160,000 from $2.9 million at March 31, 1996, to $3.0 million at
December 31,
13
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
1996, as the result of an increase in the balance in money market mutual funds.
Mortgage backed and related securities increased $2.2 million from $5.4 million
on March 31, 1996, to $7.6 million at December 31, 1996, as the net result of
the purchase of an $2.8 million of additional securities The additional
securities were purchased to meet an increase in the liquidity requirement
imposed by the Wisconsin Department of Financial Institutions from 5% to 8% of
selected liabilities.
Savings accounts increased $5.1 million from $57.3 million at March 31, 1996, to
$62.4 million at December 31, 1996. The increase in savings accounts was used to
fund the increase in loans receivable. Outstanding advances from the Federal
Home Loan Bank increased $3.4 million from $12.6 million at March 31, 1996, to
$16.0 million at December 31, 1996. Of the increase, $2.8 million in advances
were used to fund the purchase of the additional mortgage backed and related
securities required by the increase in the Wisconsin Department of Financial
Institution's liquidity requirement. The remaining $0.6 million was used to fund
a portion of the increase in loans receivable.
Shareholders Equity decreased $37,000 from $11.9 million at March 31, 1996, to
$11.9 million at December 31, 1996. The decrease is due to the purchase of an
additional $544,000 in treasury stock that changed the treasury stock balance
from ($0.6 million) at March 31, 1996, to ($1.1 million) at December 31, 1996.
This decrease is offset by the amortization of the unearned Employee Stock
Ownership Plan compensation of $105,000 from ($699,000) on March 31, 1996 to
($594,000) on December 31, 1996; the amortization of the unearned restricted
stock plan award of $172,000 from ($319,000) at March 31, 1996, to ($147,000) at
December 31, 1996; an increase in the net unrealized loss on securities held for
sale of $20,000 from ($34,000) at March 31, 1996 to ($14,000) at December 31,
1996; and the increase of $210,000 in retained earnings from $5.86 million at
March 31, 1996, to $6.07 million at December 31, 1996.
Current Developments
Deposits of the Bank currently are insured to applicable limits by the
FDIC under the Savings Association Insurance Fund ("SAIF"). The FDIC also
insures commercial bank deposits under the Bank Insurance Fund ("BIF"). Premium
levels were set for each fund to facilitate the fund achieving its designated
reserve ratio. As the funds reach their designated ratios, the FDIC has
authority to lower fund premium assessments to rates sufficient to maintain the
designated reserve ratio. In May 1995, the BIF achieved its designated ratio and
the FDIC lowered BIF premium rates for most BIF-insured institutions. In
November 1995, the FDIC reduced assessment rates by four cents per $100 of
deposits for all institutions, producing a premium rate schedule ranging from 0%
(i.e. whereby such institutions will be subject only to a $2,000 minimum annual
premium) to 0.27% of deposits depending on the institution's risk-based premium
category. Considering these assessment rate modifications, the majority of BIF
members paid only a $2,000 minimum annual premium and, therefore, BIF-insured
institutions paid, on average, 0.43 cents per $100 of deposits. The SAIF had not
achieved its designated reserve ratio and was not anticipated to do so prior to
the year 2001. Therefore, SAIF premium rates for SAIF-insured members continued
to be set at an average of 23.7 cents per $100 of deposits. As a result of the
new assessment rate provisions, SAIF member institutions were placed at a
competitive disadvantage based on higher deposit insurance premium On September
30, 1996, President Clinton signed banking legislation to resolve the deposit
insurance premium disparity. The banking package also included extensive
regulatory relief for banks and thrifts. The BIF-SAIF package contains the
following core elements for resolving the deposit premium disparity:
Special Assessment. A one-time special assessment on SAIF deposits was
imposed to bring the fund's reserve ration to the statutory 1.25 percent. The
assessment rate was approximately 65.7 basis points on deposits as of March 31,
1995. The bill clarifies that the special assessment is deductible for tax
purposes in the year paid. The special assessment amounted to $350,000 to the
Bank and is reflected in the current financial data reported as of December 31,
1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
FICO Sharing. Pro-rata sharing of the Financing Corporation obligation
among BIF-SAIF members will begin by January l, 2000. This obligation was
previously paid by only SAIF members. SAIF members will have paid the full $780
million amount of the FICO obligation for this year. From 1997 through 1999,
partial sharing will occur, with SAIF deposits assessed 6.44 basis points and
BIF deposits 1.29 basis points.
SAIF and BIF Rates. Through December 31, 1998, the assessment rate for
SAIF deposits cannot be lower than the rate for BIF deposits.
Reserve Ration, Rebates The FDIC is prohibited from setting the
semiannual assessment at a rate in excess of what is needed to maintain or meet
the required reserve ratio. Until the funds are merged, the FDIC is permitted to
rebate or credit excess premiums to BIF members only.
Deposit Migration For a three-year period, the banking regulators are
authorized to prevent SAIF-insured institutions from "facilitating or
encouraging" customers to shift their deposits to BIF-insured affiliates for the
purpose of evading the SAIF premium.
MANAGEMENT'S DISCUSSION (CONT.)
Funds Merger. The BIF and SAIF insurance funds will merge to form the
Deposit Insurance Fund on January 1, 1999, if there are no savings associations
(not including state savings banks) in existence on that date. The statute is
silent on when, how or if rechartering will occur.
Timetable. Pro-rata FICO sharing will begin and the ban on deposit
shifting will end on the earlier of January 1, 2000, or when the last savings
association ceases to exist.
Charter Reform. The Treasury Department is directed to report to
Congress by March 31, 1997, with its recommendations on a common charter for
banks and savings institutions.
BIF-SAIF RECAPITALIZATION ANALYSIS
Assuming the Bank's deposits to be approximately $60 million:
The added cost in 1996 is
$350,000 special assessment provided for as of December 31, 1996.
less 32,000 in fourth quarter refund in 1996
$318,000 in added premium for 1996
Premium Savings in Future Years
Assume that the present SAIF premium schedule would recapitalize the
SAIF in 2003. At that point the lowest "pure FICO" SAIF premium would drop to
only 16 basis points. Thereafter, the SAIF premium would stay at 16 basis points
until 2017 when the FICO bonds begin to mature, and SAIF premiums can decline to
the same level as BIF premiums. (All this analysis presumes that the current,
essentially zero, loss rate for both BIF and SAIF continues, or alternatively
that BIF and SAIF rates are equal over time.)
This establishes the SAIF rates without the new law.
Under the new law, SAIF premiums will 6.4 basis points for 1997, 1998,
and 1999. Then pro rata FICO sharing begins. The premium is 2.4 basis points
until 2017, when the FICO bonds begin to mature.
15
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
For approximately $60 million of deposits, the annual savings from 1997
onwards are:
$100,000 for 6 years = $ 600,000
$ 82,000 for 15 years = $1,230.000
$ 33,000 for 1 year = $ 33,000
$ 9,000 for 1 year = $ 9,000
----------
Total Savings $1,872,000
Thus, the undiscounted savings are over five times larger than the
up-front cost. The pay-back period is under four years. On a more sophisticated
present value basis, if the recapitalization payment is viewed as an investment
and the return as the lower stream of premium payments, the annual yield or
internal rate of return is almost exactly 25%. (Source: America's Community
Bankers) The present value of the lower stream of premiums using a 10% annual
interest rate assumption would be approximately $792,000 compared to the present
cost of $318,000. This presentation assumes that the SAIF fund would have
remained viable over that 23 year time period and its members would have
accepted the premium disparity and not have developed ways to exit the fund to
avoid payment.
FDI Act
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition operations or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC or the Department
of Financial Institutions. Management of the Bank does not know of any practice,
condition or violation that might lead to the termination of deposit insurance.
On October 5, 1994, the FDIC issued an "Advanced Notice of Proposed
Rulemaking" pursuant to which the FDIC is soliciting comments on whether the
deposit-insurance assessment base currently provided for in the FDIC's
assessment regulations should be redefined. As a result of the recent transition
to a risk-based deposit insurance system, effective January 1, 1994, the
assessment base, which had been determined by statute pursuant to the FDI Act,
is now determined by the FDIC by regulation. At present, however, the FDIC's
assessment base regulations continue to be based on the statutory provisions
under the FDI Act. Under current law, insurance premiums paid to the FDIC are
calculated by multiplying the institution's assessment base (which equals total
domestic deposits, as adjusted for certain elements) by its assessment rate.
Considering the change to the new deposit insurance system, developments
in the financial services industry, changes in the activities of depository
institutions and other factors, the FDIC seeks comments on whether the
assessment base should be redefined. The FDIC has stated that review of the
definition of "assessment base" does not signal any intent to enhance the total
dollar amount of assessments collected, but that such redefinition may impact
the assessments paid on an institution-by-institution basis. Until final
regulations are adopted affecting the definition of an institution's assessment
base, the Bank cannot predict what impact such regulation may have on Bank
operations.
Asset/Liability Management
Asset/liability management is an ongoing process of matching asset and liability
maturities to reduce interest rate risk. Management attempts to control this
risk through pricing of assets and liabilities and maintaining specific levels
of maturities. In recent periods, management's strategy has been to (1) sell
substantially all new originations of long-term, fixed-rate single family
mortgage loans in the secondary market, (2) invest in various adjustable-rate
and short-term mortgage-backed and related securities, (3) invest in
adjustable-rate,
16
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
single family mortgage loans, and (4) encourage medium and longer-term
certificates of deposit. The Company's estimated cumulative one-year gap between
assets and liabilities was a negative 3.9% of total assets, at December 31,
1996. A negative gap occurs when a greater dollar amount of interest-earning
liabilities than interest-bearing assets are repricing or maturing during a
given time period. The Bank's three-year cumulative gap as of December 31, 1996,
was a negative 13.2%. During periods of rising interest rates, a negative
interest rate sensitivity gap will tend to negatively affect net interest
income. During periods of falling interest rates, a negative interest rate
sensitivity gap will tend to positively affect the net interest income.
Management believes that its asset/liability management strategies have reduced
the potential effects of changes in interest rates on its operations. Increases
in interest rates may increase net interest income because interest-earning
assets will reprice more quickly than interest-bearing liabilities. The
Company's analysis of the maturity and repricing of assets and liabilities
incorporates certain assumptions concerning the amortization and prepayment of
such assets and liabilities.
Management believes that these assumptions approximate actual experience and
considers them reasonable, although the actual amortization and repayment of
assets and liabilities may vary substantially.
Management Strategy
Asset Quality
The Company emphasizes high asset quality in both its investment portfolio and
lending activities. Non-performing assets have ranged between 0.54% and 2.1% of
total assets during the last five fiscal years and were 1.54% of total assets at
December 31, 1996. Cumulative gross charge-offs over the last five fiscal years
of $464,000 were due primarily to commercial loans made in the mid-1980s. As of
September 30, 1996, the Board of Directors increased the quarterly loan loss
provision $19,000 to $25,000 the three months ended September 30, 1996, from
$6,000 for the three months ended June 30, 1996. The increase reflects the Board
of Directors' recognition of a commercial loan that appeared on the September
30, 1996, watch list for the first time. Unable to make an informed estimate of
the loss potential, the Board decided to establish an increased quarterly loss
allowance until more information is available to make a reasonable estimate of
any losses that may occur (See Part II, Item 1, Legal Proceedings). The
Company's allowance for loan losses at December 31, 1996, totaled $479,000 or
103.2% of cumulative gross charge-offs during the last five fiscal years.
Management currently believes the allowance for loan losses at December 31,
1996, is at an adequate level and that future provisions for loan losses will be
at levels necessary only to cover charge-offs and general increases in gross
loans.
Total non-performing loans increased from 31 loans totaling $372,000 at
December 31, 1995, to 58 loans totaling $1,396,000 at December 31, 1996. Total
non-performing assets increased from 37 items totaling $531,000 at December 31,
1995, to 63 items totaling $1,482,00 at December 31, 1996. Total loans
delinquent 31--89 days increased from 69 loans totaling $1.7 million to 83 loans
totaling $2.1 million. With the exception of the commercial loan discussed in
Part II, Legal Proceedings, that represents $536,000 of the total, the increase
in the number of delinquent loans is concentrated in the consumer loan
department. Delinquencies were created by certain deficiencies in dealer loan
policies that subsequently have been revised.
17
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Management views the increase as a major area of concern warranting increased
scrutiny. However, the latest available peer group comparison of nonperforming
loans and real estate owned as a percentage of total loans and real estate owned
as prepared by America's Community Bankers at June 30, 1996, was 1.58% of total
loans on a nation wide basis and 1.38% by asset size. Nonperforming loans and
real estate owned as a percentage of total loans for the Company was 1.89% at
December 31, 1996, compared to 0.77% at December 31, 1995. As a percentage of
assets, non-performing assets increased to 1.54% at December 31, 1996, compared
to 0.64% at December 31, 1995.
Selected Financial Ratios and Other Data: At or For the
Three months ended Nine months ended
December 31, December 31,
Performance Ratios 1996 1995 1996 1995
---- ---- ---- ----
Return on average assets 1.04% 0.85% 0.69% 1.09%
Return on average equity 8.47% 5.67% 5.50% 6.92%
18
<PAGE>
<TABLE>
MANAGEMENT'S DISCUSSION(CONT.)
Average Balance Sheet
Three Months Ended December 31, Nine Months Ended December 31,
1996 1995 1996 1995
<CAPTION>
Average Average Average Average
Out- Interest Average Out- Interest Average Out- Interest Average Out- Interest Average
standing Earned/ Yield/ standing Earned/ Yield/ standing Earned/ Yield/ standing Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Interest-earning assets:
Mortgage loans $66,518 $1,430 8.60% $57,184 $1,245 8.71% $63,599 $4,110 8.62% $54,576 $3,585 8.76%
Commercial loans 4,485 89 7.97 4,121 125 12.13 4,473 315 9.40 3,856 345 11.93
Consumer loans 7,729 188 9.74 6,465 157 9.71 7,542 553 9.78 5,767 423 9.78
----- --- ---- ----- --- ---- ----- --- ---- ----- --- ----
Total loans 78,732 1,708 8.68 67,770 1,527 9.01 75,615 4,979 8.78 64,199 4,353 9.04
Mortgage-backed securities 7,640 139 7.29 5,641 119 8.44 7,742 421 7.25 4,564 252 7.36
Interest-bearing deposits in other
financial institutions 339 4 4.96 304 3 3.95 530 20 5.00 488 21 5.74
Securities held for sale 2,829 38 5.33 3,013 38 5.04 2,929 117 5.33 2,928 112 5.10
Federal Home Loan Bank stock 822 14 6.96 521 7 5.37 721 36 6.72 472 21 5.93
--- -- ---- --- - ---- --- -- ---- --- -- ----
Total interest-earning assets 90,362 1,903 8.43% 77,249 1,694 8.77% 87,537 5,573 8.49% 72,651 4,759 8.73%
Non-interest earning asset 5,216 4,306 5,593 3,668
----- ----- ----- -----
Total assets $95,578 $81,555 $93,130 $76,319
======= ======= ======= =======
Liabilities and Stockholders' Equity
Deposits:
NOW accounts $9,041 37 1.66% $8,663 45 2.08% $9,038 115 1.70% $11,229 127 1.51%
Money market deposit accounts 4,786 57 4.77 1,503 21 5.59 3,836 137 4.76 621 25 5.37
Passbook 6,319 36 2.25 7,074 45 2.54 6,760 115 2.26 7,033 132 2.50
Certificate of deposit 42,291 608 5.70 38,069 580 6.09 41,828 1,798 5.73 34,666 1,646 6.33
------ --- ---- ------- --- ---- ------ ----- ---- ------ ----- ----
Total deposits 62,438 738 4.72 55,309 691 5.00 61,463 2,165 4.70 53,549 1,930 4.81
Advances and other borrowings 21,023 314 5.97 13,052 198 6.07 19,970 869 5.80 10,155 481 6.32
------ --- ---- ------ --- ---- ------ --- ---- ------ --- ----
Total interest-bearing liabilities 83,461 1,051 5.04% 68,361 889 5.20% 81,433 3,033 4.97% 63,704 2,411 5.05%
Non-interest bearing liabilities(1) 408 1,134 599 416
Stockholders' equity 11,709 12,060 11,719 12,199
------ ------ ------ ------
Total liabilities and
stockholders' equity $95,578 $81,555 $93,130 $76,319
Net interest income/ ======= ======= ======= =======
interest rate spread(2) $852 3.39% $805 3.57% $2,540 3.52% $2,348 3.69%
Net earning assets/ ==== ===== ==== ===== ====== ===== =====
net interest margin(3) $6,901 3.77% $8,888 4.17% $6,104 3.87% $8,947 4.31%
Average interest-earning assets to ====== ===== ====== ===== ====== ===== ====== =====
average interest-bearing liabilities 1.08 1.13 1.07 1.14
==== ==== ==== ====
---------
(1) Includes non-interest bearing checking accounts.
(2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,195
<INT-BEARING-DEPOSITS> 2,217
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,019
<INVESTMENTS-CARRYING> 7,567
<INVESTMENTS-MARKET> 7,584
<LOANS> 78,239
<ALLOWANCE> 479
<TOTAL-ASSETS> 96,518
<DEPOSITS> 62,440
<SHORT-TERM> 12,342
<LIABILITIES-OTHER> 495
<LONG-TERM> 9,414
0
0
<COMMON> 1,033
<OTHER-SE> 10,794
<TOTAL-LIABILITIES-AND-EQUITY> 96,518
<INTEREST-LOAN> 4,979
<INTEREST-INVEST> 594
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,573
<INTEREST-DEPOSIT> 2,165
<INTEREST-EXPENSE> 3,034
<INTEREST-INCOME-NET> 2,539
<LOAN-LOSSES> 56
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,078
<INCOME-PRETAX> 832
<INCOME-PRE-EXTRAORDINARY> 483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 483
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 352
<LOANS-NON> 1,388
<LOANS-PAST> 11
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 8
<ALLOWANCE-OPEN> 433
<CHARGE-OFFS> 33
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 479
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
